Standby Letter of Credit

With the introduction of Uniform Rules for Documentary Guarantee or URDG 758, the rules for Documentary Guarantee seem to be popular again. It can be imagined from the increasing number of questions that have popped up in recent days. Documentary Guarantee Forum is an effort to develop a platform to discuss these questions.
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Standby Letter of Credit

Post by Corium » Mon Apr 25, 2011 3:06 pm

Would like to know if we can use the Standby Letter of Credit as a collateral to open Letter of credit?

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Post by bhaskar1979 » Sun Jun 12, 2011 12:46 am

my dear friend.
SBLC is a guarantee of payment against non performance whereas LC guarantees payment against performance. LC cannot be opened against SBLCs. to open LC you required accepted purchase order from seller.

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Post by Akamine » Thu Dec 29, 2011 7:49 pm

Dear Bhaskar 1979,

Can you please give some examples of the collaterals for the LC? Is the collateral regulated? I cannot find any information about it in the ICC's issues. Thanks so much.

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Post by picant » Fri Dec 30, 2011 8:16 pm

Hi Pals,

collateral means to give real guarantee to the bank that issue the l/c, if you have no credit line for such transaction.
It could be a blocked deposit of money or securities, government bonds, stocks etc. This deposit will be used only to debit l/c presentations.
It is not covered by ICC Rules but General Banking Rules valid in your Country Banks.
Other comments appreciated

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Post by nesarul » Sat Dec 31, 2011 12:06 pm

usually we opened commercial letter of credit on behalf of applicant [loosely mentioned]. now question is who are the issuer of the SBLC is the main factor here and applicable law [as picant said].
hence more explanation required.

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Post by picant » Sat Dec 31, 2011 2:26 pm

Hi Pals and Nesarul,

I dont understand your question, no difference, IMHO, between a guarantee issued with or without collateral. The applicant has not a credit facility with issuing bank and will deposit a collateral to "guarantee" the issuance . If the applicant has credit facility with its own bank, it will availed the credit line, at disposal, for the amount of the guarantee. Credit line or facility is not regulated by ICC, but by the Issuing Bank's Policy, following General Banking Rules, i.e. Basel II or Basel III.
Could you repeat your question?

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